How Sales Tax Works in the US
Unlike countries with a single national VAT, the US has no federal sales tax — rates are set at the state level, and often layered with additional county and city taxes on top. This is why the same purchase can carry very different tax amounts depending on where it's made, even within the same state.
States With No Sales Tax
Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — charge no statewide sales tax, though Alaska allows local municipalities to levy their own. Everywhere else, combined state and local rates commonly range from around 4% to over 9%.
What's Usually Taxed, and What Isn't
Most tangible goods sold at retail are taxable, but many states exempt or reduce tax on necessities like groceries, prescription medication, and clothing up to a certain price. Services are taxed inconsistently across states — some tax haircuts and repairs, others don't — which is part of why sales tax calculations aren't always as simple as applying one flat rate to every purchase.
Why Businesses Need to Track Tax Rates Precisely
Sellers are generally responsible for collecting the correct tax based on where the sale occurs (or, for online sales, often where the buyer is located, under economic nexus rules that expanded significantly after the 2018 Wayfair Supreme Court decision). Getting the rate wrong — even by a fraction of a percent — can create compliance issues at audit time, which is why many businesses use address-based tax lookup tools rather than a single flat rate.